Farm values will increase by an average of 5.5% for the next five years with the effect of Brexit likely to be muted

27 February 2017

Farmland value performance

During the past 10 years the overall value of GB farmland has increased by 149% and barring any  major economic or fiscal changes, we do not anticipate significant price rises or falls in the short to medium term and are forecasting overall average growth of 5.5% for the next five years followed by sustained, steady growth in the longer term.

Alex Lawson Savills Director comments, “Over the past few years we have seen a widening in the range of values achieved, which we expect to continue as buyers choose to invest in the best land available.”

Brexit effect

In the short term, the downside of Brexit on farmland values is likely to be muted.

Ian Bailey Savills rural research says, “The weak pound creates a favourable buying environment for buyers from overseas as mentioned above and this along with the potential reduced supply driven by uncertainty, will help support farmland values.” In addition, we expect increasing amounts of rollover cash and general economic improvement in the medium term to support demand and therefore prices.

In the event of a significant reduction in farm subsidies in 2020 and therefore average incomes, the negative effect is likely to be greater on rents than farmland values.

Despite some downward pressure (-5 per cent) on average farmland values over the past two years, the overall value of UK farmland during the past 10 years has increased by 149 per cent. Barring any major economic or fiscal changes, we do not anticipate significant price rises or falls in the short to medium term and are forecasting overall average growth of 5.5 per cent for the next five years followed by sustained, steady growth in the longer term.

Our forecasts for the next five years (see table) are derived with the output of our ‘Farmland Value Model’ which tracks the drivers of farmland values back to 1975 – soon after we joined the EEC.

The weighted model takes into account the key variables that can affect price such as farm incomes, wheat price and yield, subsidies, prime country house values and the previous year’s farmland values adjusting for any ‘lag’ effect. In addition, our forecasts are calculated with a thorough understanding of how supply and demand influences the market.

Five-year forecast of farmland values  

The average value of farmland across the UK is likely to remain under some pressure in the short term due to low commodity prices despite the fall in input costs and increased subsidy receipts due to the weak value of sterling. This short-term price pressure will be tempered by a continued low supply which will also help to underpin prices in the medium to long term.

In addition, we expect an increasing amount of cash from Capital Gains Tax rollover relief as development activity increases and a general economic improvement in the medium term to support demand for farmland and therefore prices in 2020 and 2021 despite the uncertainty surrounding the detail of a new UK Agricultural Policy.

Buyers and sellers

The proportion of farmers selling last year was lower than in 2015; contributing factors include the recent softening in average farmland values, uncertainty surrounding Brexit and the short term prospect of an increase in subsidy as a result of the weak pound. Also there was an increased use of borrowings to fund purchases, 30% of buyers compared with 23% in 2015.

While the weak pound, which has reduced on paper the average value of farmland by £1000 for the overseas investor has not yet led to purchases in the numbers seen before the Global Financial Crisis of 20%, enquiry levels have increased for good quality commercial arable land and more complex blocks of land with long term strategic potential.

For further information please contact Ian Bailey head of agricultural research 0207 2993 099

 

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Louise Rose

Louise Rose

Director
Rural

Savills Margaret Street

+44 (0) 79 6755 5817